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GST, infrastructure status lift spirit of logistics companies

India’s logistics and supply chain sector is undergoing a wave of change as two big moves by the government—implementing GST and giving infrastructure status to the sector—has led companies to ascribe unprecedented importance to this aspect of business, making investments in it and hiring the best talent to steer it.

“From GST the industry has one common wish list: one market, seamless flow of goods, helping businesses focus on real cost optimization in their supply chain and eventually lower transaction cost,” said RS Subramanian, the India head of DHL Express, the world’s biggest international express service provider by volume.

“Right away, we see improved speed of goods movement with reduced road blocks but for the rest, it is early days yet. GST implementation is on a phase of continuous improvement -it’s a matter of time before the benefits flow,” he added.

“GST and the infrastructure status to this sector are the two biggest, most important things that could have happened for logistics and supply chain,” said Kishore Biyani, founder of Future Group, whose logistics arm Future Supply Chain Solutions is making a debut on the bourses this week.

“We had GST in mind even when we started this company. We designed everything around GST. When GST came in, we thought we have a play now,” he added.

Biyani said supply chain and logistics are the most important back-end aspects of the group’s overall business. Its importance has only increased in the last one year. Now the group companies’ heads of the logistics function are a key part of every managerial decision that the group takes, something that may not have been the case earlier. He added the logistics costs of the group is less than 2%, claiming it’s least 50% below any competitor.

From July 1, the government implemented a historic tax overhaul that replaces at least seven indirect tax heads including countervailing duty, special additional duty of customs, excise duty, service tax, central sales tax, value added tax, octroi and state cesses with one tax on goods and services.

On November 21, it conferred infrastructure status to the logistics sector which in effect means any more investment in infrastructure—like warehouses and cold chain storage--in this sector would get the advantage of cheaper financing from banks.

"The government giving infrastructure status to this sector is a brilliant move. Now the companies that build warehouses and cold chains will get loans at least a 2% lower interest rate than what's prevalent. This will decrease their costs and ultimately have a positive impact on the rentals the 3PL companies like us are paying to them for leasing that infrastructure. However this only benefits bigger players as the government has mandated that this is valid only when it entails an investment of Rs 25 crore or above in warehousing infrastructure," said Anshuman Singh, chairman of the Warburg Pincus-backed Stellar Value Chain solutions.

He added that while some teething problems related to GST are over, the government still needs to “attack” the e-way bill, the complicated digital bill that is planned to replace the paper bills in these operations. Industry players and state governments have been raising concerns on the new bill, leading to the government to postpone its implementation to April 1 next year.

But the benefits are more tangible than they may seem.

Ramesh Agarwal, chairman of logistics firm Agarwal Movers and Packers which also helps move houses, said he will soon be able to pass on considerable costs benefits to his customers.

Hiring trends have immensely changed for logistics companies, said Shashi Kiran Shetty, founder and chairman of Allcargo Logistics, which according to several headhunters ET spoke to, is the biggest recruiter of young talent in this still burgeoning field.

Allcargo this year, hired 23 fresh graduates, its highest number ever, and more than double the number of hires last year, said a spokesperson.

“There is a huge uptick in demand for skilled professionals within supply chain. Compared to last year, the numbers for our company is 35% higher,” said Pranshu Upadhyay, director at global head hunter Michael Page.

“We saw a little bit of a slowdown in the initial days of GST implementation but now, it's like the floodgates have opened. A lot of this hiring is in the field of supply chain and data analytics which is a career that a lot of young professionals look forward to,” he added.

"Also, there is a huge amount of outsourcing that's happening in the sector, which is why the traditional roles of warehouse management are getting redundant,” he added.

Other headhunters ET spoke to, said that apart from Allcargo, DHL India, Dubai’s DP World that has announced a $1 billion investment in India and and home grown courier services firm DTDC are big recruiters. This is for professionals with experiences of at least 8 years. They are being offered packages of close to Rs 80 lakh, almost 25% more than the average pay package in a similar position in this field, last year.

The other interesting trend, according to Upadhyay of Michael Page, is that a lot of individual freelance professionals with knowledge in artificial intelligence and big data are being hired on contractual basis purely to act as interfaces between these companies and their new techinal partners and automation partners to more efficiently handle logistics and supply chain.

Warehousing plans and structures have changed drastically. There is a prominent shift to bigger structures and a clear emphases on higher automation.

The companies to do it in India, sources said, are Ikea, Philips and French auto component maker Valeo.

“There is a major remodelling of warehouses post-GST. Uniformity in taxes and removal of interstate checkpoints are leading to the consolidation of warehouses into bigger spaces and greater overall efficiency, especially among larger and modern firms. There is also a consolidation happening among 3 PL and 4 PL players,” said Rajesh Jaggi, Managing Partner- Real Estate, Everstone Capital. IndoSpace, a joint venture of the private equity firm and American realtor Realterm is India’s biggest maker.

Jaggi said the other prominent trends are a more prominent shift to the hub and spoke model, introduction of new technology and robotics, demand for better quality warehouses as well as backend/frontend intergration of supply chain management.

“Transportation lot sizes will automatically increase, making way for more efficient bigger trucks,” added Bipin Kulkarni, vice president, sales and marketing at Spear, an Indian company owned by the EUR1 billion French logistics major FM logistic.

He added there will be “reduction in transit time and thus lower cost of transportation due to removal of inter-city/state check points.”

"During the initial period, there has been a lot of confusion amongst businesses on various rules in GST. However, there has been significant reduction on that front in recent times. Some businesses are still working on changing their structure. Compliance burden on small companies have increased. Some businesses had moved to GST regime with out studying it in detail. Therefore, it will take little longer to reap the benefits of GST," said Ganesh Rewanwar, CEO of FreightBazaar, an online marketplace that connects truck suppliers and users.